BY MBONGISENI NDZIMANDZE AND KWANELE DLAMINI
MBABANE – Investigations initiated by the Financial Services Regulatory Authority (FSRA) into Fairlife Beneficiary Fund have cast a shadow of uncertainty over the security of retirement benefits across Eswatini’s pension sector.
The discovery of financial and governance lapses, highlighted by an 80 per cent funding ratio, unperformed monthly bank reconciliations and the lack of a structured plan to restore financial stability, threatens to undermine public confidence in the administration of occupational pensions and beneficiary funds nationwide.
For thousands of dependents and future retirees whose financial security relies on the soundness of these institutional investments, the regulator’s findings raise urgent questions about the safeguarding of their assets and the immediate management of their claims.
Fairlife Beneficiary Fund administers 20 retirement funds and related schemes, placing the savings and benefits linked to a range of institutions and organisations under scrutiny. Some of the pension administered by Fairlife Beneficiary Fund are Coca-Cola Provident Fund, Swaziland Railway Provident Fund, NAMBoard Pension Fund, ESWADE Provident Fund, Ubombo Ingcamu Provident Fund, Old Mutual Lihawu Umbrella Retirement Fund, EPTC Pension Fund and Fairlife Fund itself.
According to the inspection report contained in court papers filed by the FSRA in the High Court, EPTC had approximately 570 pensioners drawing benefits compared with 150 active contributing members at the time. FSRA also reported that about E400 million was needed to fully fund the scheme.
According to the report, Fairlife Beneficiary Fund’s audited financial statements for the year ended June 30, 2022, showed that its liabilities exceeded its assets, leaving it with a funding ratio of 80 per cent.
In money terms, Fairlife Beneficiary Fund allegedly owes approximately E36 million but only has assets worth approximately E26 million thus a deficit of approximately E9.5 million. This means that its liabilities exceed its assets.
A funding ratio measures a fund’s assets against the liabilities it is required to meet. A ratio of 80 per cent means that, for every E100 in liabilities measured in that assessment, the fund had E80 in assets.
The inspection report further states that there was no documented evidence of deliberations on the financial position identified during the inspection.
The regulator also found that the fund had not conducted a risk assessment in accordance with Section 5 of the Risk Management Guideline, 2020 and did not have a documented scheme to restore its financial soundness and address the reported 20 per cent shortfall.
These findings form part of the concerns that have prompted the FSRA to approach the High Court for authority to appoint an interim administrator to take over the running of the fund.
The application names Fairlife Beneficiary Fund as the first respondent and Fairlife Benefit Services Swaziland (Pty) Ltd as the second respondent.
The regulator is seeking an order empowering it to appoint an interim administrator in terms of Section 38(2) of the Retirement Funds Act, 2005. It also wants the company administering the fund directed to cooperate fully with the interim administrator and provide the assistance necessary to run the fund.
The inspection report also raises concerns about the fund’s financial controls, stating that it did not conduct monthly bank reconciliations.
Bank reconciliations involve comparing an organisation’s accounting records with its bank statements to identify errors, unexplained transactions and discrepancies between recorded balances and the amounts held by the bank.
The report notes that monthly reconciliations assist a fund in identifying errors. Their absence was recorded as one of the matters requiring attention during the inspection.
The proposed interim administrator would be expected to undertake a detailed examination of the fund’s financial position and records, including verifying beneficiary balances, historical contributions, interest allocations and benefit entitlements.
The proposed terms of reference also include examining fees charged to the fund by its administrator and conducting a forensic review of relevant transactions involving the administrator, trustees and connected entities or individuals.
The inspection material further warns that the withdrawal of the fund’s biggest retirement fund could expose it to financial distress. These are allegations whose veracity is still to be tested in court.
The report refers to beneficiary data submitted as at September 2023 and states that an impact analysis and business continuity plan were necessary.
It also records that the fund did not have a documented restoration plan to address the funding shortfall identified in its audited financial statements.
The documents reviewed do not establish that the anticipated withdrawal of the largest retirement fund actually occurred. They also do not quantify the full amount required to restore the fund’s financial position.
Apart from the financial and governance concerns, the regulator is challenging the legal basis on which Fairlife Benefit Services Swaziland (Pty) Ltd administers the fund.
In its founding papers, the FSRA relies on Section 66(1) of the Retirement Funds Act, 2005, which deals with the appointment of retirement fund administrators. The regulator alleges that Fairlife Benefit Services Swaziland (Pty) Ltd is neither an insurance company nor a registered insurance broker and that its appointment as administrator was not approved by the authority.
“The second respondent (Fairlife Benefit Services Swaziland) is not an insurance company nor a registered insurance broker. The appointment of the second respondent as an administrator of the first respondent (Fairlife Beneficiary Fund) must be approved by the applicant (FSRA). The second respondent is operating as the first respondent’s administrator despite the applicant not having approved the appointment,” FSRA Chief Executive Officer Ncamiso Ntshalintshali submitted.
The veracity of these allegations is still to be tested in court.
The FSRA, which is represented by Simphiwe Mkhumane of Magagula and Hlophe Attorneys, consequently argues that the company is providing fund administration services without the required authorisation.
This remains the regulator’s position in support of its court application and is not presented as a final judicial determination on the company’s legal status or the validity of the administration arrangements.
The papers also refer to the fiduciary responsibilities of trustees under Section 10 of the Retirement Funds Act, which requires them to protect the interests of members and beneficiaries. The inspection material further discusses arrangements involving life insurance policies and the beneficiary fund.
It records that the fund entered into a service-level agreement with Orchard Insurance in relation to a product that the report states was rolled out in 2021.
The report states that approximately 20 members with life policies through Orchard had signed cessions to Fairlife Beneficiary Fund. It also records two life policies from Old Mutual Life Assurance Company, each valued at E108 000, which had been ceded to the fund.
The proposed interim administrator would examine relevant records and transactions as part of the wider assessment. In its notice of motion, the FSRA asks the High Court to empower it to appoint an interim administrator under Section 38(2) of the Retirement Funds Act, 2005.
It also seeks an order directing Fairlife Benefit Services Swaziland (Pty) Ltd to cooperate fully with the interim administrator and provide the assistance necessary to run the fund under Sections 38 and 39 of the Act.
The regulator further seeks costs in the event of unsuccessful opposition and any further relief the court considers appropriate.
